Settlement Date and Freeriding

When you buy or sell a security, the day your trade executes is considered the trade date. For example, if you place a real-time trade, your market order is sent to market and filled shortly after. The trade date is the day the order was executed (sent and filled). It's easy to tell if your order has been executed because a trade confirmation will be posted to your account immediately after your order is filled. After 3 days, your trade will settle, which completes the transaction.

Note: Bank-only holidays such as Columbus Day and Veterans Day are not considered settlement days. To view a list of all market holidays, see our Holiday Calendar.

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The settlement date is 3 market days after the trade date (1 market day for options and mutual fund trades) and is the point by which securities must be exchanged for payment. Any assets being traded must be available in your ShareBuilder account at the time a transaction occurs.

Until the settlement date has been reached, the assets gained from a trade – either shares of a security or cash – cannot be transferred or distributed from a ShareBuilder account. You can, however, sell recently-purchased shares or use the proceeds of a sale for a purchase before the settlement date has been reached.

ShareBuilder allows you to reinvest funds from recent stock sales with the understanding that you will not sell the newly purchased shares until three days after the first stock was sold. Regulation T of the Federal Reserve Board requires that stock purchased in a cash account must be paid for in full prior to its sale. Failure to comply with these rules is known as "freeriding" and is not permitted.

Note: Bank-only holidays such as Columbus Day and Veterans Day are not considered settlement days. To view a list of all market holidays, see our Holiday Calendar.

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When you buy or sell a security, the trade date is the day your trade occurs, or executes. For example, if you place a real-time trade, your market order is sent to market and filled shortly after. The trade date is the day the order was executed (sent and filled). It's easy to tell if your order has been executed because a trade confirmation will be posted to your account.

A settlement date is a bit different, and is best explained in the context of selling a security. For example, when you sell a stock, your market order is sent to market and filled the same day. However, the funds you receive for selling stock do not settle for 3 days. This settlement period allows ShareBuilder to clear the transaction and pass the funds from buyer to seller. The settlement date is the day the trade must be settled. That is, the date by which a buyer must pay for the securities delivered by the seller.

Note: Bank-only holidays such as Columbus Day and Veterans Day are not considered settlement days. To view a list of all market holidays, see our Holiday Calendar.

Important: Regulation T of the Federal Reserve Board (FRB) requires that stock purchased in a cash account must be paid for before it is sold. Your account may be restricted if you fail to comply with these rules.

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After a trade order executes, it takes 1 to 3 days to settle. Here's a list of security types and their respective settlement dates:

You will be able to withdraw funds from your ShareBuilder account or use the funds to buy securities after the settlement date.

What is the difference between trade date and settlement date?

Note: Bank-only holidays such as Columbus Day and Veterans Day are not considered settlement days. To view a list of all market holidays, see our Holiday Calendar.

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Settled funds are funds available on settlement date from sale proceeds of fully paid for securities.

Settled funds can be used to purchase new securities. Securities purchased with settled funds have no requirements surrounding the timeframe of when the newly purchased securities can be sold.

ShareBuilder does allow you to reinvest funds from recent stock sales. However, if you choose to sell the new shares before the settlement date of the prior sell order, ShareBuilder is required to treat the transaction as freeriding under Federal Reserve Board rules for cash accounts.

Note: Bank-only holidays such as Columbus Day and Veterans Day are not considered settlement days. To view a list of all market holidays, see our Holiday Calendar.

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Regulation T of the Federal Reserve Board (FRB) requires that stock purchased in a cash account must be paid for in full before it is sold. A failure to comply with these rules is known as freeriding.

The most common situations that fall under this category are:

1. Proceeds from one stock sale were used to fund the purchase of other shares, but the new shares were sold before the sale of the old shares settled.
2. A recent deposit bounced and the stock purchased with that deposit was sold to cover the debit.

   
   IMPORTANT: ShareBuilder does allow you to reinvest funds from recent stock sales. However, if you choose to sell the new shares before the settlement date of the prior sell order, ShareBuilder is required to treat the transaction as freeriding under Federal Reserve Board rules for cash accounts.

Identifying Potential Payment Problems:

You can prevent potential problems by following the same type of review that ShareBuilder undertakes to identify this type of payment issue.

1. Have at least three market days passed since you purchased the stock? Your trade confirmation shows the settlement date.
2. If you purchased a stock with the proceeds from a prior sale, verify that the settlement date for the original shares you sold has passed prior to selling it.

If you have not satisfied one of the two requirements listed above, you may simply deposit sufficient additional funds to cover the purchase of the shares that you intend to sell.

Note: Bank-only holidays such as Columbus Day and Veterans Day are not considered settlement days. To view a list of all market holidays, see our Holiday Calendar.

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Regulation T of the Federal Reserve Board (FRB) requires that stock purchased in a cash account must be paid for in full before it is sold. A failure to comply with these rules is known as freeriding.

The most common situations that fall under this category are:

1. A recent deposit bounced and the stock purchased with that deposit was sold to cover the debit.
2. Proceeds from one stock sale were used to fund the purchase of other shares, but the new shares were sold before the sale of the old shares settled.

ShareBuilder does allow you to reinvest funds from recent stock sales. However, if you choose to sell the new shares before the settlement date of the prior sell order, ShareBuilder is required to treat the transaction as freeriding under Federal Reserve Board rules for cash accounts.

Identifying Potential Payment Problems:

You can prevent potential problems by following the same type of review that ShareBuilder undertakes to identify this type of payment issue.

1. Have at least three days passed since you purchased the stock? Your trade confirmation shows the settlement date.
2. If you purchased a stock with the proceeds from a prior sale, verify that the settlement date of the shares you sold has passed prior to selling it.

If you have not satisfied one of the two requirements listed above you may simply deposit sufficient additional funds to cover the purchase of the shares that you intend to sell.

 

Note: Bank-only holidays such as Columbus Day and Veterans Day are not considered settlement days. To view a list of all market holidays, see our Holiday Calendar.

If you do not have additional funds to deposit but choose to sell your security anyway, you are in violation of Federal Reserve Board regulations. The Federal Reserve Board requires that ShareBuilder place a 90-day settled-funds-only freeze on every cash account that is in violation. Accounts with this restriction are unable to invest funds from stock sales until the sales settle.

This settled-funds-only freeze will not prevent you from investing newly deposited funds or selling any shares in your account.

What does the FRB have to do with securities accounts?

The Federal Reserve Board regulates the extension of credit to consumers. In the case of a cash securities account, the FRB sets forth the requirements for securities payments in section 220.08 of Regulation T: http://www.federalreserve.gov/regulations/default.htm

Regulation T is based on the FRB's belief that a customer who sells securities before having the cash to pay for them is engaging in a credit transaction, essentially borrowing money to invest. This type of transaction is properly done in a margin account.

In addition, the FRB posts Legal Interpretations of Regulation T that describe how the Regulation is applied at http://www.federalreserve.gov/boarddocs/legalint/ under margin requirements.

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When determining how much cash you have available for investing in your ShareBuilder account, only those funds in your money market cash balance that you have not designated for a pending orders or withdrawal requests may be requested. In addition, some of the funds may be subject to holding periods that will delay their availability. Here is a list of possible fund designations that may appear in the 'Cash Available for Investing' section of the 'Balances' page.

• Money Market Cash Balance – Total amount of funds showing in your ShareBuilder account
  • Open Orders – Funds being used for a pending buy order
  • Other Withdrawal Requests – Funds being used for a pending withdrawal request
  • Unsettled Trades – Appears if your account is restricted to settled funds

Note: Bank-only holidays such as Columbus Day and Veterans Day are not considered settlement days. To view a list of all market holidays, see our Holiday Calendar.

Important: Buying securities on margin is not appropriate for all investors. Before investing on margin, please read the Margin Account Agreement for important risk disclosure information, and see ShareBuilder's margin interest rates.

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When requesting funds from your ShareBuilder account, only those funds in your money market cash balance that you have not designated for a pending order or a pending withdrawal may be requested. In addition, some of the funds may be subject to holding periods that will delay their availability.

Here is a list of possible fund designations that may appear in the 'Funds Availability' section of the 'Withdraw Money' page.

• Money Market Cash Balance – Total amount of funds showing in your ShareBuilder account.
  • Open Orders – Funds being used for a pending buy order.
  • Other Funds Requests – Funds being used for a pending withdrawal request.
  • Margin Loan Availability – Margin accounts can withdraw this amount to use outside of their account; this does not include the Money Market Cash Balance.
• Maximum Funds Available to Request – Total amount of funds available for new buy orders. These funds may be subject to holding periods.
  • Unsettled Trades – Funds from the sale of stock not available for withdrawal from your ShareBuilder account until settlement date, 3 market days after the trade date (1 market day for option and mutual fund trades).
  • Uncollected Funds – Funds from recent deposits that are subject to holding periods.
• Funds Available to Request Today – Maximum amount of funds available for immediate withdraw from your ShareBuilder account.

Only funds that are in your money market cash balance can be withdrawn from your ShareBuilder account. If you own securities in your account, and wish to withdraw the value of those securities, you will first need to sell the individual securities with a real-time trade.

Also, holding periods may affect funds availability for withdrawals from your ShareBuilder account. Please refer to the table below:

Note: Bank-only holidays such as Columbus Day and Veterans Day are not considered settlement days. To view a list of all market holidays, see our Holiday Calendar.

Important: Buying securities on margin is not appropriate for all investors. Before investing using margin, please read the Margin Account Agreement for important risk disclosure information, and see ShareBuilder's margin interest rates.

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